TFSA: 2 Top Canadian Dividend Stocks for Your $6,500 Room Contribution

Are you looking for dividend stocks to add to your TFSA? Here are two top picks!

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Opening a Tax-Free Savings Account (TFSA) is something that investors should do today if they haven’t already. That’s because, as the name suggests, any gains generated in one of these accounts can be withdrawn tax free. That could help you accelerate your way to financial independence. By investing in dividend stocks, you could generate a significant source of tax-free passive income. In 2023, Canadians were given $6,500 in contribution room for their TFSA.

In this article, I’ll discuss two top stocks to buy with that room.

This stock has grown its dividend for nearly 50 years

When it comes to dividend stocks, Fortis (TSX:FTS) tends to stand out among the pack. For those that aren’t familiar, this company provides regulated gas and electric utilities to more than three million customers across Canada, the United States, and the Caribbean. Because utility companies tend to operate on a recurring revenue model, companies like Fortis can take advantage of a very predictable source of income. That allows them to plan for dividend raises many years in advance.

We can see Fortis putting this advantage to good use by looking at its 49-year dividend-growth streak. If it’s not clear how impressive that feat is, consider this: Fortis holds the second-longest active dividend growth streak in Canada. The fact that Fortis has been able to raise its dividend through the Great Recession and the COVID-19 pandemic should be highlighted. Many stellar companies needed to halt raises or suspend dividends altogether because of those two events.

I strongly believe Fortis could continue to raise its dividend and, in turn, keep investors happy for years to come. The company has already announced that it will raise its dividend at a rate of 4-6% through to at least 2027. With a forward dividend yield of 3.79%, Fortis stock should be very attractive to investors.

When in doubt, go with one of the banks

Dividend investors should also be very fond of the Canadian banks. Those companies have been distributing a dividend for many years. In fact, some companies, like Bank of Nova Scotia (TSX:BNS), are coming up on nearly two centuries of continued dividend distributions. Bank of Nova Scotia, in particular, has been paying shareholders a dividend for 190 years.

In addition to that strong dividend history, the Canadian banks are very solid businesses. The Big Five, in particular, have very strong moats. Combine that with a highly regulated Canadian banking industry, and companies like Bank of Nova Scotia start to appear like they could remain as industry leaders for a very long time.

Still looking at Bank of Nova Scotia, we can see that the company has remained committed to growing internationally. This allows the company to expand into new regions and build on its impressive North American business. If its international exploits prove successful, then that could be another way that Bank of Nova Scotia could support its outstanding dividend.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jed Lloren has positions in Bank Of Nova Scotia and Fortis. The Motley Fool recommends Bank Of Nova Scotia and Fortis. The Motley Fool has a disclosure policy.

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